BRT Apartments Corp. - Quarter Report: 2012 December (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-Q

 

x  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended December 31, 2012

 

OR

 

o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number 001-07172

 

BRT REALTY TRUST

(Exact name of Registrant as specified in its charter)

 

 

 

516-466-3100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

 

14,191,887 Shares of Beneficial Interest,

$3 par value, outstanding on February 5, 2013

 

 

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

Table of Contents

 

		Page No.
Part I - Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets — December  31, 2012 and September 30, 2012	1
	Consolidated Statements of Operations — Three months ended December 31, 2012 and 2011	2
	Consolidated Statements of Comprehensive (Loss) Income — Three months ended December 31, 2012 and 2011	3
	Consolidated Statement of Equity — Three months ended December 31, 2012	4
	Consolidated Statements of Cash Flows — Three months ended December 31, 2012 and 2011	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	26
Item 4.	Controls and Procedures	26
Part II — Other Information
Item 2.	Unregistered sales of equity securities and use of proceeds	27
Item 6.	Exhibits	28

 

Table of Contents

 

Part 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

		December 31, 2012 (Unaudited)			September 30, 2012
ASSETS
Real estate properties net of accumulated depreciation and amortization of $6,072 and $4,787		$	255,422		$	190,317
Real estate loans, all earning interest		71,257			37,096
Deferred fee income		(1,056		)	(512		)
Real estate loans, net		70,201			36,584
Cash and cash equivalents		32,613			78,245
Restricted cash — construction holdbacks		49,597			55,252
Available-for-sale securities at fair value		1,226			1,249
Deferred costs, net		12,449			12,337
Prepaid expenses		5,110			5,978
Other assets		5,725			5,994
Total Assets		$	432,343		$	385,956
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable		$	214,810		$	169,284
Junior subordinated notes		37,400			37,400
Accounts payable and accrued liabilities		4,611			4,298
Deposits payable		2,160			2,108
Deferred income		25,848			25,848
Total Liabilities		284,829			238,938
Commitments and contingencies		—			—
Equity:
BRT Realty Trust shareholders’ equity:
Preferred shares, $1 par value:
Authorized 10,000 shares, none issued		—			—
Shares of beneficial interest, $3 par value:
Authorized number of shares, unlimited, 13,473 issued in both periods		40,420			40,420
Additional paid-in capital		165,451			165,258
Accumulated other comprehensive income		344			356
Accumulated deficit		(73,889		)	(72,585		)
Total BRT Realty Trust shareholders’ equity		132,326			133,449
Non-controlling interests		15,188			13,569
Total Equity		147,514			147,018
Total Liabilities and Equity		$	432,343		$	385,956

 

See accompanying notes to consolidated financial statements.

 

1

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

		Three Months Ended
		December 31,
		2012			2011
Revenues:
Rental and other revenue from real estate properties		$	5,640		$	768
Interest and fees on real estate loans		1,879			2,252
Recovery of previously provided allowances		422			7
Other income		310			127
Total revenues		8,251			3,154
Expenses:
Interest expense		2,946			467
Advisor’s fees, related party		374			171
General and administrative—including $205 and $279 to related party		1,863			1,674
Property acquisition costs		878			—
Operating expenses relating to real estate properties		3,146			786
Depreciation and amortization		1,287			184
Total expenses		10,494			3,282
Total revenues less total expenses		(2,243		)	(128		)
Equity in earnings (loss) of unconsolidated ventures		61			(75		)
Loss on sale of available-for-sale securities		—			(18		)
Gain on sale of loan		—			3,192
(Loss) income from continuing operations		(2,182		)	2,971
Discontinued operations:
Gain on sale of real estate assets		—			490
Net (loss) income		(2,182		)	3,461
Plus: net loss attributable to non- controlling interests		878			413
Net (loss) income attributable to common shareholders		$	(1,304	)	$	3,874
Basic and diluted per share amounts attributable to common shareholders:
(Loss) income from continuing operations		$	(.09	)	$	.24
Discontinued operations		—			.04
Basic and diluted (loss) income per share		$	(.09	)	$	.28
Amounts attributable to BRT Realty Trust:
(Loss) income from continuing operations		$	(1,304	)	$	3,384
Discontinued operations		—			490
Net (loss) income		$	(1,304	)	$	3,874
Weighted average number of common shares outstanding:
Basic and diluted		14,053,362			13,982,164

 

See accompanying notes to consolidated financial statements.

 

2

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(Dollars in thousands)

 

		Three Months Ended
		December 31,
		2012			2011
Net (loss) income		$	(2,182	)	$	3,461
Other comprehensive income:
Net unrealized (loss) gain on available-for-sale securities		(23		)	377
Unrealized gain on derivative instruments		11			—
Other comprehensive (loss) income		(12		)	377
Comprehensive (loss) income		(2,194		)	3,838
Comprehensive income (loss) attributable to non-controlling interests		2			—
Comprehensive (loss) income attributable to common shareholders		$	(2,192	)	$	3,838

 

See accompanying notes to consolidated financial statements.

 

3

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY

Three Months Ended December 31, 2012

 (Unaudited)

(Dollars in thousands, except share data)

 

		Shares of Beneficial Interest			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Non- Controlling Interest			Total
Balances, September 30, 2012		$	40,420		$	165,258		$	356		$	(72,585	)	$	13,569		$	147,018
Restricted stock vesting
Compensation expense — restricted stock					193												193
Contributions from non-controlling interests														2,894			2,894
Distributions to non-controlling interests														(397		)	(397		)
Net loss											(1,304		)	(878		)	(2,182		)
Other comprehensive loss								(12		)							(12		)
Comprehensive loss																	(2,194		)
Balances, December 31, 2012		$	40,420		$	165,451		$	344		$	(73,889	)	$	15,188		$	147,514

 

See accompanying notes to consolidated financial statements.

 

4

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in Thousands)

 

		Three Months Ended December 31,
		2012			2011
Cash flows from operating activities:
Net (loss) income		$	(2,182	)	$	3,461
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Recovery of previously provided allowances		(422		)	(7		)
Amortization and depreciation		1,683			264
Amortization of deferred fee income		(333		)	(320		)
Amortization of restricted stock		193			210
Gain on sale of real estate assets from discontinued operations		—			(490		)
Gain on sale of available-for-sale securities		—			18
Gain on sale of loan		—			(3,192		)
Equity in (loss) earnings of unconsolidated joint ventures		(61		)	75
Distribution of earnings of unconsolidated joint ventures		45			123
Change in straight-line rent		3			12
Increases and decreases from changes in other assets and liabilities:
(Increase) decrease in interest and dividends receivable		(44		)	243
(Increase) decrease in prepaid expenses		(406		)	178
Decrease in prepaid interest		814			—
Increase (decrease) in accounts payable and accrued liabilities		376			(204		)
(Increase) decrease in deferred costs		(152		)	13
Increase (decrease) in security deposits and other receivable		567			(15		)
Other		214			(2		)
Net cash provided by operating activities		295			367
Cash flows from investing activities:
Collections from real estate loans		8,657			51,682
Additions to real estate loans		(42,818		)	(25,457		)
Loan loss recoveries		422			7
Additions to real estate properties		(57,400		)	—
Net costs capitalized to real estate owned		(8,791		)	(792		)
Net change in restricted cash – construction holdbacks		5,655			—
Collection of loan fees		877			625
Proceeds from sale of real estate owned		6			507
Proceeds from sale of available-for-sale securities		—			556
Purchase of available for sale securities		—			(1,030		)
Distributions of capital from unconsolidated joint ventures		—			3,035
Net cash (used in) provided by investing activities		(93,392		)	29,133

 

5

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

(Dollars in Thousands)

 

		Three Months Ended December 31,
		2012			2011
Cash flows from financing activities:
Increase in mortgages payable		46,010			4,282
Mortgage principal payments		(484		)	(70		)
Increase in deferred borrowing costs		(558		)	(381		)
Capital contributions from non-controlling interests		2,894			—
Capital distribution to non-controlling interests		(397		)	—
Repurchase of shares of beneficial interest		—			(767		)
Net cash provided by financing activities		47,465			3,064
Net (decrease) increase in cash and cash equivalents		(45,632		)	32,564
Cash and cash equivalents at beginning of period		78,245			44,025
Cash and cash equivalents at end of period		$	32,613		$	76,589
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	2,316		$	109
Taxes paid		$	3		$	—

 

See accompanying notes to consolidated financial statements.

 

6

Table of Contents

 

BRT REALTY TRUST AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2012

 

Note 1 — Organization and Background

 

BRT Realty Trust (“BRT” or the “Trust”) is a business trust organized in Massachusetts.  BRT (i) originates and holds for investment senior mortgage loans secured by commercial and multi-family real estate property in the United States, (ii) began participating, in fiscal 2012, as an equity investor in joint ventures that own and operate multi-family properties and (iii) owns and operates commercial and mixed use real estate assets, and in particular, development properties located in Newark, New Jersey.

 

The loans we originate generally have relatively high yields and are short-term or bridge loans with a duration ranging from six months to one year, with up to a one year extension in certain cases. Our policy is to lend at a floating rate of interest based on a spread over the prime rate, with a stated minimum rate, though we originate fixed rate loans as circumstances dictate.

 

The Trust generally contributes 80% of the equity in each multi-family property acquisition.

 

The Trust conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes.

 

Note 2 - Basis of Preparation

 

The accompanying interim unaudited consolidated financial statements as of December 31, 2012 and for the three months ended December 31, 2012 and 2011 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for such interim periods. The results of operations for the three months ended December 31, 2012 are not necessarily indicative of the results for the full year.  The balance sheet as of September 30, 2012 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

 

Certain items on the consolidated financial statements for the preceding period have been reclassified to conform with the current period’s presentation.

 

The consolidated financial statements include the accounts and operations of BRT Realty Trust, its wholly owned subsidiaries, and its majority owned or controlled real estate entities and its interests in variable interest entities in which the Trust is determined to be the primary beneficiary. Material intercompany balances and transactions have been eliminated.

 

RBH-TRB Newark Holdings LLC, referred to herein as the Newark Joint Venture, was determined to be a Variable Interest Entity (“VIE”) because the total equity investment at risk is not sufficient to permit it to finance its activities without additional subordinated financial support by its equity holders. The Trust was determined to be the primary beneficiary of this joint venture because it has a controlling interest in that it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits from the entity that could potentially be significant to the VIE.

 

7

Table of Contents

 

Note 2 - Basis of Preparation (Continued)

 

The Trust’s consolidated joint ventures that own multi-family properties were determined to be VIE’s because the voting rights of some equity investors are not proportional to their obligations to absorb the expected losses of the entity and their right to receive the expected residual returns. In addition, substantially all of the entity’s activities either involve or are conducted on behalf of the investor that has disproportionately few voting rights.

 

The Trust was determined to be the primary beneficiary of these joint ventures because it has a controlling interest in that it has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and it has the obligation to absorb losses of the entity and the right to receive benefits from the entity that could potentially be significant to the VIE.

 

With respect to its unconsolidated joint ventures, in which (i) the Trust is primarily the managing member but does not exercise substantial operating control over these entities or the Trust is not the managing member and (ii) such entities are not VIE’s, the Trust has determined that such joint ventures should be accounted for under the equity method of accounting for financial statement purposes.

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates.

 

Note 3 - Equity

 

Common Share Dividend Distribution

 

During the quarter ended December 31, 2012, the Trust did not declare a dividend on its shares.

 

Restricted Shares

 

The Trust’s 2012 Incentive Plan, approved by its shareholders in January 2012, permits the Trust to grant stock options, restricted stock, restricted stock units, performance shares awards and any one or more of the foregoing.  A maximum of 600,000 shares may be issued pursuant to such plan.  An aggregate of 580,180 shares of restricted stock have been granted pursuant to the Trust’s 2003 and 2009 equity incentive plans (collectively, the “Prior Plans”) and had not vested as of December 31, 2012.  No awards had been granted under the 2012 Plan as of December 31, 2012, and no additional awards may be granted under the Prior Plans.  The restricted shares that have been granted under the Prior Plans vest five years from the date of grant and under specified circumstances, including a change in control, may vest earlier. For accounting purposes, the restricted shares are not included in the outstanding shares shown on the consolidated balance sheet until they vest, but are included in the earnings per share computation.   The estimated fair value of restricted stock at the date of grant is being amortized ratably into expense over the applicable vesting period. For the three months ended December 31, 2012 and 2011 the Trust recorded $193,000 and $210,000 of compensation expense respectively.  At December 31, 2012, $1,677,000 has been deferred as unearned compensation and will be charged to expense over the remaining weighted average vesting period of approximately 2.5 years.

 

8

Table of Contents

 

Note 3 — Equity (Continued)

 

Per Share Data

 

Basic (loss) earnings per share attributable to holders of shares of beneficial interest was determined by dividing net (loss) income for the period by the weighted average number of common shares outstanding during each period.

 

Diluted (loss) earnings per share attributable to holders of shares of beneficial interest reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares that shared in the earnings of the Trust.

 

Basic and diluted shares outstanding for the three months ended December 31, 2012 and 2011 were 14,053,362 and 13,982,164, respectively.

 

Note 4 - Real Estate Properties

 

A summary of real estate properties owned is as follows (dollars in thousands):

 

		September 30, 2012 Balance			Additions			Costs Capitalized and Improvements			Depreciation, Amortization and other reductions			December 31, 2012 Balance
Shopping centers/Retail		$	2,749		—			—			$	(26	)	$	2,723
Coop condo apartments		250			—			—			(7		)	243
Commercial / mixed use (a)		61,808			—			$	7,997		(153		)	69,652
Multi Family (b)		117,538			$	57,400		998			(1,104		)	174,832
Land		7,972			—			—			—			7,972
Total real estate properties		$	190,317		$	57,400		$	8,995		$	(1,290	)	$	255,422

 

a)  Represents the real estate assets of the Newark Joint Venture, a consolidated VIE which owns operating and development properties in Newark, NJ.  These properties contain a mix of office, retail space, charter schools and surface parking.  Certain of these assets are subject to  blanket  mortgages  aggregating $20,100,000,  held  by  the  Trust,  which  are  eliminated  in consolidation.  Several of the assets are also encumbered by other mortgages which are discussed in Note 8 Debt Obligations — Mortgages Payable.

 

b)  In the quarter ended December 31, 2012, the Trust purchased through consolidated joint ventures in which the Trust has an 80% or 90% equity interest, the following multi-family properties (dollars in thousands):

 

Location		Purchase Date		Number of Units		Contract Purchase Price			Acquisition Mortgage Debt			BRT Equity			Property Acquisition Costs
North Charleston, SC		10/4/12		208		$	21,500		$	17,716		$	4,410		$	213
Cordova, TN		11/15/12		464		25,450			19,248			6,220			386
Decatur, GA		11/19/12		212		10,450			8,046			3,396			231
				884		$	57,400		$	45,010		$	14,026		$	830

 

9

Table of Contents

 

Note 5 - Real Estate Loans

 

Information relating to real estate loans, all of which are earning interest, is summarized as follows (dollars in thousands):

 

		December 31, 2012					September 30, 2012
Property Type		Real Estate Loans			Percent		Real Estate Loans			Percent
Multi-family residential		$	31,283		45	%	$	35,096		95	%
Hotel		15,695			22	%	—			—
Parking facility		14,269			20	%	—			—
Retail		10,010			13	%	2,000			5
		71,257			100	%	37,096			100	%
Deferred fee income		(1,056		)			(512		)
Real estate loans, net		$	70,201				$	36,584

 

At December 31, 2012, three separate borrowers had three loans outstanding that in the aggregate were in excess of 10% of total loans. Information regarding these loans are set forth in the table below (dollars in thousands):

 

Property Type		Gross Loan Balance			% of Gross Loans		% of Assets		State		Status
Multi-Family		$	14,734		20.7	%	3.4	%	GA		Performing
Parking Facility		$	14,269		20.0	%	3.3	%	NY		Performing
Hotels		$	14,100		19.8	%	3.3	%	NY		Performing

 

Substantially all of the Trust’s loan portfolio consists of senior mortgage loans secured by real properties, 57% of which are located in New York, 21% in Georgia, 10% in Maryland, and 12% in three other states.

 

On December 5, 2012, the Trust originated a loan in the amount of $21,174,000.  Gould Investors L.P., a related party, participated in this loan on a pari passu basis and holds a $6,905,000 interest in this loan.  The Trust retained a $14,269,000 interest in this loan.

 

Note 6 - Allowance for Possible Losses

 

At December 31, 2012 and September 30, 2012 the Trust did not have an allowance for possible loan losses.

 

Note 7 — Available-For-Sale Securities

 

Information regarding our available-for-sale securities is set forth in the table below (dollars in thousands):

 

		December 31, 2012			September 30, 2012
Cost basis		$	789		$	789
Unrealized gains		477			499
Unrealized losses		(40		)	(39		)
Market value		$	1,226		$	1,249

 

10

Table of Contents

 

Note 7 — Available-For-Sale Securities (Continued)

 

Unrealized gains and losses are reflected as accumulated other comprehensive income in the accompanying consolidated balance sheets.

 

The Trust’s available-for-sale equity securities were determined to be Level 1 financial assets within the valuation hierarchy established by current accounting guidance, and the valuation is based on current market quotes received from financial sources that trade such securities.  All of the available-for-sale securities in an unrealized loss position are not considered impaired on an other than temporary basis because the Trust expects the value of these securities to recover and plans on holding them until at least such recovery.

 

Note 8 — Debt Obligations

 

Debt obligations consist of the following (dollars in thousands):

 

		December 31, 2012			September 30, 2012
Line of credit		—			—
Junior subordinated notes		$	37,400		$	37,400
Mortgages payable		214,810			169,284
Total debt obligations		$	252,210		$	206,684

 

Line of credit

 

On June 22, 2011, the Trust, through a wholly owned subsidiary, entered into a senior secured revolving credit facility with Capital One, National Association.  The maximum amount that may be borrowed under the facility is the lesser of $25 million and the borrowing base.  The borrowing base ranges from 40% to 65% (depending on, among other things, the type of property secured by the eligible mortgage receivables pledged to the lender and the operating income of the related property) of eligible mortgage receivables.  Interest accrues on the outstanding balance at the greater of (i) 4% plus LIBOR and (ii) 5.50%. The facility matures June 21, 2014 and, subject to the satisfaction of specified conditions, the outstanding balance may be converted at the Trust’s option into an 18-month term loan.  The Trust has guaranteed the payment and performance of its subsidiary’s obligations under the facility.

 

On April 17, 2012, the facility was amended to allow the subsidiary to borrow for up to 90 days on an unsecured basis, a maximum of $10,000,000.

 

The facility, requires the Trust and the subsidiary to maintain or comply with, among other things, net worth and liquidity covenants, debt service and collateral coverage ratios and limits, with specified exceptions, and the incurrence of debt.

 

For the three months ended December 31, 2012 and 2011, interest expense, which includes fee amortization with respect to the facility, was $38,000 and $37,000, respectively.  At December 31, 2012 and September 30, 2012, there were no outstanding balances on this facility.

 

11

Table of Contents

 

Note 8 — Debt Obligations (Continued)

 

Junior Subordinated Notes

 

At December 31, 2012 and September 30, 2012, the Trust’s junior subordinated notes had an outstanding principal balance of $37,400,000.  The interest rates on the outstanding notes is set forth in the table below:

 

Interest Period		Interest Rate
March 15, 2011 through July 31, 2012		3.00	%
August 1, 2012 through April 29, 2016		4.90	%
April 30, 2016 through April 30, 2036		Libor + 2.00	%

 

Interest expense relating to the junior subordinated notes for the three months ended December 31, 2012 and 2011 was $458,000 and $281,000, respectively.  Amortization of the deferred costs, which is a component of interest expense on borrowed funds, was $5,000 for both the three months ended December 31, 2012 and 2011.

 

Mortgages Payable

 

The Trust had the following obligations outstanding as of the dates indicated all of which are secured by the underlying real property (dollars in thousands):

 

 

Property		December 31, 2012			September 30, 2012			Rate		Maturity
Yonkers, NY		$	1,932		$	1,954		5.25	%	April 2022
Palm Beach Gardens, FL		45,200			45,200			3.78	%	April 2019
Melboune, FL		7,680			7,680			3.98	%	April 2019
Marietta, GA		7,443			6,462			6.50	%	February 2015
Lawrenceville, GA		4,687			4,687			4.49	%	March 2022
Collierville, TN		25,680			25,680			3.91	%	July 2022
North Charleston, SC		17,716			—			3.79	%	November 2022
Cordova, TN		19,248			—			3.71	%	December 2022
Decatur, GA		8,046			—			3.74	%	December 2022
65 Market St—Newark, NJ		900			900			7.00	%	January 2015
909 Broad St—Newark, NJ		6,084			6,132			6.00	%	August 2030
Teachers Village—Newark, NJ(1)		2,738			2,738			17	%	March 2013
Teachers Village—Newark, NJ(2)		22,748			22,748			5.50	%	December 2030
Teachers Village—Newark, NJ		4,250			4,250			3.46	%	February 2032
Teachers Village—Newark, NJ		979			988			2.00	%	February 2022
Teachers Village—Newark, NJ		994			1,380			2.50	%	February 2014
Teachers Village—Newark, NJ		1,832			1,832				(3)	February 2034
Teachers Village—Newark, NJ		15,700			15,700			Libor + 3.00	%	August 2019
Teachers Village—Newark, NJ		5,250			5,250			3.28	%	September 2042
Teachers Village—Newark, NJ		13,491			13,491			8.65	%	December 2023
Teachers Village—Newark, NJ		2,212			2,212				(4)	August 2034
		$	214,810		$	169,284

 

12

Table of Contents

 

Note 8 — Debt Obligations (Continued)

 

(1)                                 As of December 31, 2012 and September 30, 2012, respectively, the Trust had guaranteed $685,000 of this mortgage obligation.

 

(2)                                 TD Bank has the right, in 2018, to require subsidiaries of the Newark Joint Venture to repurchase such debt. If such right is exercised, such subsidiaries will be required to refinance such debt. The stated interest rate is 5.5% per year; however, the United States Treasury Department is reimbursing the interest at the rate of 4.99% per year under the Qualified School Construction Bond program and accordingly, the effective rate of interest thereon until 2018 is 0.51% per year.

 

(3)                                 The debt is to be serviced in full by annual payment-in-lieu of taxes (“PILOT”) of $256,000 in 2013 increasing to approximately $281,000 at maturity. This obligation is not secured by real property.

 

(4)                                 The debt is to be serviced in full by annual PILOT payments of $311,000 in 2013 increasing to approximately $344,000 at maturity.

 

Note 9 — Deferred Income (New Markets Tax Credit Transaction)

 

On September 11, 2012 and February 3, 2012 special purpose subsidiaries of the Newark Joint Venture entered into transactions with affiliates of Goldman Sachs (“Goldman”) related to the Teacher’s Village project and received proceeds related to NMTC’s the project qualified for. The NMTC program was enacted by Congress to serve low-income and distressed communities by providing investors with tax credit incentives to make capital investments in those communities. The program permits taxpayers to claim credits against their Federal income tax for up to 39% of qualified investments.

 

Goldman contributed $16,400,000 and $11,200,000 to the projects through special-purpose entities created to effect the financing transaction and is entitled to receive tax credits against its qualified investment in the project over the next seven years. At the end of the seven years, the Newark Joint Venture subsidiaries have the option to acquire the special purpose entities for a nominal fee and it is anticipated that they will exercise this option.

 

Included in deferred income on the Trust’s consolidated balance sheet at December 31, 2012 and September 30, 2012 is $25,848,000 of the Goldman contribution, which is net of fees. This amount will be recognized into income when the obligation to comply with the requirements of the NMTC program as set forth in the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), is eliminated. Risks of non-compliance include recapture (i.e. reversal of the benefit of the tax credit and the related indemnity obligation of the Newark Joint Venture). The tax credits are subject to recapture for a seven year period as provided in the Code.

 

Costs incurred in structuring these transactions are deferred and will be recognized as an expense based on the maturities of the various mortgage financings related to the NMTC transaction.  At December 31, 2012 and September 30, 2012 these costs totaled $9.8 million and $10.1 million, respectively.

 

The Trust determined that these special purpose entities are VIE’s. The VIE’s ongoing activities, which include collecting and remitting interest and fees and NMTC compliance, were all considered in the design of the special purpose entities and are not anticipated to affect the economic performance during the life of the VIE’s.

 

13

Table of Contents

 

Note 9 — Deferred Income (New Markets Tax Credit Transaction) (Continued)

 

Management considered the obligation to deliver tax benefits and provide guarantees to Goldman and the Trust’s obligations to absorb the losses of the VIE. Management also considered Goldman’s lack of a material interest in the underlying economics of the project. Management concluded that the Trust is the primary beneficiary and has therefore consolidated the VIE’s.

 

Note 10 - Segment Reporting

 

Management has determined that it operates in three reportable segments: (i) a loan and investment segment which includes the origination and servicing of our loan portfolio and its investments, (ii) a multi-family property segment which includes the ownership and operation of its multi-family properties; and (iii) a commercial and mixed use real estate segment which includes the operation and disposition of the Trust’s other real estate assets and in particular, the Newark Joint Venture.  Due to the addition of the multi-family properties in fiscal 2012 and 2013, the Trust changed the manner in which general and administrative expenses and general corporate debt is allocated to the segments.  Management determined it would be more appropriate to allocate these expenses based on the amount of equity invested rather than on the total assets of each segment as was previously done.  The prior period has been changed to reflect the new allocation of these expenses.

 

The following table summarizes our segment reporting for the periods indicated (dollars in thousands):

 

		Three Months Ended December 31, 2012
		Loan and Investment			Multi- Family Real Estate			Other Real Estate			Total
Rental and other revenues from real estate properties		—			$	4,950		$	690		$	5,640
Interest and loan fee income		$	1,879		––			––			1,879
Other income		442						290			732
Total revenues		2,321			4,950			980			8,251
Interest expense		357			1,487			1,102			2,946
Advisors fee, related party		186			134			54			374
General and administrative expenses		1,285			396			182			1,863
Property acquisition costs		—			878			—			878
Operating expenses relating to real estate properties		—			2,300			846			3,146
Depreciation and amortization		—			1,104			183			1,287
Total expenses		1,828			6,299			2,367			10,494
Total revenues less total expenses		493			(1,349		)	(1,387		)	(2,243		)
Equity in earnings of unconsolidated ventures		—			—			61			61
Income (loss) from continuing operations		493			(1,349		)	(1,326		)	(2,182		)
Plus: net loss attributable to non-controlling interests		—			111			767			878
Net income (loss) attributable to common shareholders		$	493		$	(1,238	)	$	(559	)	$	(1,304	)
Segment assets at December 31, 2012		$	102,255		$	183,485		$	146,603		$	432,343

 

14

Table of Contents

 

Note 10 -Segment Reporting (Continued)

 

The following table summarizes our segment reporting for the periods indicated (dollars in thousands):

 

		Three Months Ended December 31, 2011
		Loan and Investment			Real Estate			Total
Interest and loan fee income		$	2,252		—			$	2,252
Rental and other revenues from real estate properties		––			$	768		768
Other income		134			––			134
Total revenues		2,386			768			3,154
Interest expense		275			192			467
Advisors fees, related party		84			87			171
General and administrative and other expenses		1,426			248			1,674
Operating expenses related to real estate properties		—			786			786
Depreciation and amortization		—			184			184
Total expenses		1,785			1,497			3,282
Total revenues less total expenses		601			(729		)	(128		)
Equity in (loss) earnings of unconsolidated ventures		(142		)	67			(75		)
Loss on sale of available-for-sale securities		(18		)				(18		)
Gain on sale of loan		3,192			—			3,192
Income (loss) from continuing operations		3,633			(662		)	2,971
Discontinued operations:
Gain on sale of real estate assets		—			490			490
Net income (loss)		3,633			(172		)	3,461
Plus net loss attributable to non-controlling interests					413			413
Net income attributable to common shareholders		3,633			241			3,874
Segment assets at December 31, 2011		$	129,867		$	68,435		$	198,302

 

15